Australian Foundation Investment : AFIC December Update

As a long-term investor, one of AFIC's primary methods of delivering value to our shareholders is through investments that offer a growing stream of fully franked dividends. In so doing, our goal is to provide income growth over time that increases at a greater rate than inflation.

We are aware not all shareholders are seeking immediate income. An effective way of growing the capital value of your investment in AFIC over time is to participate in the Dividend Reinvestment Plan (DRP) that AFIC operates.

About reinvesting dividends

At the most basic level, a dividend reinvestment plan is a program offered by many companies to existing shareholders. It allows them to directly reinvest their dividend payments by using them to purchase additional shares on the dividend payment date, instead of taking the dividends as cash.

Reinvesting in shares through a program like this can be an affordable way to achieve compound returns over time as there are no brokerage costs when acquiring additional shares this way. Some companies may also offer a discount on the share price for shareholders who reinvest through such a plan.

The great Albert Einstein once said 'Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn't… pays it.'

It is important to remember that reinvested dividends are still considered income for taxation purposes and should be reported as taxable income.

AFIC's approach to reinvesting dividends

The AFIC Dividend Reinvestment Plan provides shareholders with convenient options for reinvesting all or part of their dividends in additional AFIC shares.

On relevant dividend payment dates, the dividend attributable to shares nominated for inclusion in AFIC's DRP will be automatically reinvested in AFIC shares. The number of new shares purchased under the DRP is determined by the price of the share (DRP reinvestment price) and the value of the relevant dividends.

AFIC meets all administration costs associated with the DRP. No brokerage, commission or other transaction costs are payable by participants on shares allotted under the DRP.

Our shareholders can join the plan, vary their participation or withdraw from it at any time. If part of a shareholder's holding is nominated for participation in the DRP, the remaining balance of the shareholding will receive cash dividends in the normal way.

If you're an AFIC shareholder and wish to participate in the DRP, visit the website for an Application Form. You can complete it online or complete and submit it to the Share Registry.

AFIC also offers an alternative reinvestment plan called the Dividend Substitution Share Plan (DSSP). This has different tax implications to the DRP so investors need to bear this in mind when considering.

As with any investment decision it is important to carefully examine your current financial situation and future needs before choosing an investment option. Before applying for the DRP, it may be helpful to visit the Dividend Reinvestment Plan section of the AFIC website for more information or speak with your trusted adviser.